Loss functions for LGD model comparison - HAL-SHS - Sciences de l'Homme et de la Société Accéder directement au contenu
Pré-Publication, Document De Travail Année : 2017

Loss functions for LGD model comparison

Résumé

We propose a new approach for comparing Loss Given Default (LGD) models which is based on loss functions defined in terms of regulatory capital charge. Our comparison method improves the banks' ability to absorb their unexpected credit losses, by penalizing more heavily LGD forecast errors made on credits associated with high exposure and long maturity. We also introduce asymmetric loss functions that only penalize the LGD forecast errors that lead to underestimate the regulatory capital. We show theoretically that our approach ranks models differently compared to the traditional approach which only focuses on LGD forecast errors. We apply our methodology to six competing LGD models using a unique sample of almost 10,000 defaulted credit and leasing contracts provided by an international bank. Our empirical findings clearly show that model rankings based on capital charge losses differ drastically from those based on the LGD loss functions currently used by regulators, banks, and academics.
Fichier principal
Vignette du fichier
LGD_26_mai_2017.pdf (1.02 Mo) Télécharger le fichier
Origine Fichiers produits par l'(les) auteur(s)
Loading...

Dates et versions

halshs-01516147 , version 1 (28-04-2017)
halshs-01516147 , version 2 (27-05-2017)
halshs-01516147 , version 3 (10-01-2018)

Licence

Domaine public

Identifiants

  • HAL Id : halshs-01516147 , version 2

Citer

Christophe Hurlin, Jérémy Leymarie, Antoine Patin. Loss functions for LGD model comparison. 2017. ⟨halshs-01516147v2⟩
823 Consultations
6030 Téléchargements

Partager

Gmail Mastodon Facebook X LinkedIn More